Cameron v Stephens
[2021] VCC 127
•19 February 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-18-00527
| Paul Cameron | First plaintiff |
| and | |
| Joseph Alesci | Second plaintiff |
| and | |
| Lucas Stephens | First defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1-6 and 29 July 2020 | |
DATE OF JUDGMENT: | 19 February 2021 | |
CASE MAY BE CITED AS: | Cameron & Anor v Stephens | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 127 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contracts – whether contract is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 (Vic) – whether the owners are entitled to be repaid sums charged and paid in excess of milestone payments in s40(2) of the Act
Legislation Cited: Domestic Building Contracts Act 1995 (Vic), Building Act1993 (Vic), Queensland Building Services Authority Act1991 (Qld)
Cases Cited:Mrocki v Mountainview Prestige Homes Pty Ltd [2010] VSC 624, Shaw v Yarranova Pty Ltd [2006] VSCA 291, Mann v Paterson Constructions Pty Ltd [2019] HCA 32; Cook’s Construction Pty Ltd v 007 298 633 Pty Ltd (2009) 254 ALR 661, Traffic Technique Pty Ltd v Burgmann & Anor [2020] VSCA 319, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr S Stuckey QC with Mr N Andreou | DSA Law |
| For the defendant | Mr B Carr | David Naidoo & Associates |
HIS HONOUR:
Summary and Outcome
1 On about 11 November 2010, the plaintiffs Paul Cameron and Joseph Alesci settled on the purchase of a property at 17 Strachans Road, Mornington, (“property”) intending to construct two townhouses on the property. The property was purchased in Mr Cameron’s name, but the plaintiffs contributed equally to the cost. They ultimately engaged the first defendant Lucas Stephens to manage and arrange the construction of the townhouses, under the terms of a contract between the parties entitled “Construction Management Contract” and dated 14 February 2012 (“CMC”). The second defendant was Mr Stephens’ construction company, which has been deregistered and took no part in the proceeding. There was no issue in the proceeding concerning Mr Stephens’ status as a party to the CMC. References below to “the defendant” are to Mr Stephens.
2 The works began in late May 2012. But not long after, the relationship between the parties (notably between Mr Alesci and Mr Stephens) began to deteriorate. By September and October, threats of termination were being made on both sides. In late November and December, Mr Stephens sent to the plaintiffs a number of substantial invoices in quick succession. While the plaintiffs were seeking clarification of what the invoices covered, Mr Stephens took steps to rely on non-payment of the invoices to purport to terminate the CMC. Mr Stephens ceased work in late December 2012 and, on any view of the facts, the CMC came to an end in January 2013.
3 The plaintiffs claim for losses which they say represent the difference between what they paid the defendant and the value of the work performed by him, allowing for alleged defects.
4 The following questions arise for determination in the proceeding:
· Is the CMC a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 (Vic) (“DBC Act”)?
· Does s40 of the DBC Act confer a right of recovery against the defendant?
· Are the plaintiffs entitled to the relief they seek under s40(2) of the DBC Act?
· What becomes of the plaintiffs’ alternative claims?
· Should the plaintiffs have leave to further amend their statement of claim?
· Is the defendant entitled to damages under his counterclaim?
5 In my view, for the reasons below, the answers to each of the first three questions above is yes. There will therefore be judgment for the plaintiffs on their claim in the sum of $171,103, plus interest on that sum. Further, I am satisfied that the defendant’s counterclaim must be dismissed. Subject to any matters that the parties bring to my attention on the question of costs, I would propose to order that the defendant pay the plaintiffs’ costs of the proceeding (including reserved costs) on the standard basis, in default of agreement. I will otherwise hear further from the parties on interest and costs.
The relevant facts
6 In around March 2011, the plaintiffs provided the plans and planning permits for the townhouse construction to Hannaford & Co Pty Ltd for the purpose of obtaining a cost estimate and trade breakdown. This was provided by Hannaford & Co Pty Ltd on about 11 March 2011. The total estimate (including a 15% builder’s margin and GST) was $1,376,663.71. As the settlement date approached, Mr Cameron arranged for a quote from Prime Projects, a local company that his nephew worked for. Mr Cameron provided only the town planning drawings and a basic specification. The quote came in at $1,259,640 (including GST), but excluded some significant cost items. This was more than the plaintiffs wanted to pay and so they decided to obtain further quotes.
7 Mr Cameron knew Mr Stephens and his father (primarily the latter) socially and suggested that the plaintiffs approach the defendant for a quote. Unsurprisingly, given the time that has passed since the events in question, there is some divergence between the parties about the timing and content of meetings over the ensuing weeks, leading up to the signing of the CMC. However, for present purposes it is sufficient to note that:
(a) at an early meeting between the parties in October or November 2011, Mr Stephens gave a rough estimate of the likely cost of the project based on a square metre rate of $13,000 per square metre, plus a 20% “builders fee”, giving a total development cost of $1.15 million;
(b) this was recorded on a document prepared by Mr Stephens, which he took to the meeting – the version in the court book has handwritten annotations made by both Mr Stephens and Mr Alesci during the meeting;
(c) it appears that there was some negotiation over the estimate at the meeting, and this continued in later discussions and emails between the defendant and Mr Alesci after the meeting,
(d) although the defendant disputes this, the plaintiffs recall the defendant recommending during the discussion (and during later discussions) that they use a “cost-plus” contract for the project, because this would be cheaper;
(e) in an email dated 20 October 2011, Mr Alesci proposed as follows:
“Luke, my thinking is as follows:
Fixed fee to you $60K plus bonus of 50% of the saving under your upper level $962 (inc GST)
If you meet the lower level you advised $888k (inc GST), then bonus is $37K
Lets call it $100k all up.Conditional on:
you achieving a cap of $962k
6 month completionLet me know your thoughts, happy to take on any cost savings you can suggest...”
(f) on Wednesday 14 December 2011, Mr Stephens sent Mr Alesci an email with the subject line “Estimate costs in more detail”, comprising a table headed “Estimated Predactive [sic] Costs for 17 Strachans Road Mornington”, and setting out what the defendant described as a “tabulation of the quotations I had received” totalling $850,316, plus a 15% management fee and GST (“14 December Estimate”);
(g) discussions and negotiations continued during January 2012, and at some point between providing the 14 December Estimate and the signing of the CMC, Mr Stephens agreed to reduce his builder’s margin to a lump sum of $100,000;
(h) Mr Stephens initially proposed that his $100,000 fee be paid by eight instalments, but the parties agreed (and the CMC provided) that Mr Stephens’ fee would be paid in five monthly instalments of $12,000, plus GST, with the balance of $40,000 (plus GST) to be paid on the provision of a certificate of occupancy;
(i) the plaintiffs gave evidence about two meetings with the defendant leading up to the signing of the CMC, during which (according the plaintiffs) the defendant made clear that, despite the form of the CMC, he would be their builder; and
(j) relevantly for the plaintiffs’ claim for misleading and deceptive conduct, they also gave evidence that during these meetings Mr Stephens gave an assurance to the effect that they need not worry about the termination clause, as he would only terminate for non-payment, and that the duration of the build was six to eight months (the CMC does not expressly provide for a duration of the build, but the special conditions in clause 26 include an incidental reference to 28 weeks in the estimate of cash flow).
8 It is clear that the relationship between Mr Stephens and Mr Alesci was tense even before they signed the CMC. Unlike Mr Cameron, Mr Alesci did not have a pre-existing personal relationship with Mr Stephens. Those tensions began to escalate soon after the works at the property commenced in late May 2012, a week or so after the issue of the building permit. Both Mr Alesci and Mr Stephens described in their evidence particular events and exchanges which they say contributed to their respective frustrations with the other. Mr Alesci said that he was primarily concerned about delays in the works. Mr Stephens’ evidence was that Mr Alesci was regularly giving direct instructions to the trades on site and making numerous changes to the works.
9 By mid to late September 2012, the relationship between Mr Alesci and Mr Stephens had deteriorated further. Mr Stephens sent an email dated 13 September 2021 following up on two invoices both dated 30 August 2012. These were SR0007 for $110,000 (including GST) identified as a “progress claim” and invoice SR0008 for $13,200 (including GST) for Mr Stephens’ builders fee for July. In his email, Mr Stephens stated that “until I receive payment for these invoices I can only continue to the end of the week”. The following day, Mr Alesci and Mr Stephens met on site, when Mr Alesci complained about Mr Stephens’ lack of supervision of the trades and lack of progress. In emails and telephone conversations on 20 and 21 September 2012, there are references to terminating the CMC and “going down the legal path”.
10 Mr Cameron joined the fray after his return from overseas on 1 October 2012, and met with Mr Stephens the following day. Mr Cameron’s evidence was that he tried to calm the situation. According to Mr Cameron, Mr Stephens said at the meeting that he found Mr Alesci unreasonable to deal with and asked Mr Cameron to take over as the main point of contact for the remainder of the build. Mr Cameron said that he told Mr Stephens he could not do this, as he had business commitments in Indonesia and did not have enough knowledge of the job to date.
11 In the meantime, Mr Stephens had sent two further invoices dated 28 September 2012, being SR0009 for $44,000 for a further “progress claim” and SR0010 for $13,200 for Mr Stephens’ builders fee for August. Mr Cameron contacted Mr Stephens and told him that he would pay $38,000 towards these invoices on 9 October 2012, leaving a balance of $19,200. On that same day, being 11 days after the previous progress claim, Mr Stephens sent another progress claim, this time for $66,000 (including GST) (invoice SR0011). Mr Cameron’s evidence was that around the same time, he received another invoice (SR0012) for $13,200 for a further builder’s fee, which Mr Cameron described as “totally incorrect and not due to him at all.”
12 On 10 October 2012, Mr Stephens sent an email to Mr Cameron asserting that Mr Cameron had instructed him that he no longer had to deal with Mr Alesci on the project. Mr Cameron replied by email later that day stating that at no stage did he instruct Mr Cameron that he did not have to deal with Mr Alesci. On 11 October 2012, Mr Stephens sent the plaintiffs by registered mail a “Notice of Intention to Terminate Contract”, relying primarily on the failure by the plaintiffs to pay the $19,200 balance owing on invoices SR0009 and SR0010 as grounds for the termination, and allowing 10 days to rectify the alleged breach. Mr Cameron said that “despite his growing concerns with the way the claims were now being made”, on 17 October 2012 he arranged to pay Mr Stephens $85,200, comprising the balance owing on invoices SR0009 and SR0010 plus the $66,000 payable on invoice SR0011.
13 Mr Cameron’s evidence was that after this payment, Mr Stephens continued to work on the site and “it appeared the job was moving forward”. Mr Stephens issued a progress claim on 26 November 2012 (invoice SR0013) for $44,000 (including GST), which Mr Stephens paid the following day. But only three days later, on 30 November 2012, Mr Stephens issued a further progress claim (invoice SR0014) for $66,000 (including GST) and a further progress claim (invoice SR0015) in the same amount dated 10 December 2012. On 18 December 2012, Mr Stephens sent the plaintiffs a second Notice of Intention to Terminate Contract, this time relying on the failure to pay invoices SR0015 and SR0015, totalling $132,000.
14 There followed a number of emails between the parties. The plaintiffs’ emails referred to delays in securing funds from National Australia Bank and indicated that they were seeking costings and proof of expenditure to support the substantial sums claimed in the two invoices. Mr Stephens’ emails referred to delays in payment causing problems with keeping his trades on site and causing personal grief and stress.
15 On 20 December 2012, Mr Alesci arranged to draw a personal cheque for invoice SR0014 and a bank cheque for invoice SR0015. He scanned these and sent copies to Mr Stephens under cover of an email noting that Mr Stephens had failed to communicate with Mr Alesci for over three weeks and asserting that “your behaviour is a breach of a fundamental condition of the contract”. He said: “I tender cheques evidencing ability to make the payments you claim”. Mr Alesci’s evidence was that Mr Stephens failed to attend to collect the cheques.
16 On 7 January 2013, Mr Alesci sent Mr Stephens an email alleging a breach by Mr Stephens of the CMC and terminating the CMC. The following day, Mr Stephens sent the plaintiffs a formal “Notice of Termination” of the CMC, referring to his Notice of Intention to Terminate Contract dated 18 December 2012 and noting that the sums claimed in that notice had not been paid. In the result, Mr Stephens ceased all work at the property in late December 2013 and neither of invoices SR0014 or SR0015 was paid by the plaintiffs.
17 In early February 2013, Mr Stephens met with Mr Cameron to reconcile his accounts. He claimed in that meeting and in correspondence sent to the plaintiffs at around the same time, that his “Job Transactions [Accrual]” transaction list (“JTA”) showed that he was owed $27,287.59 for costs incurred by him that had not been reimbursed. By early March, this claim had reduced to $10,699.46. Then on 26 March 2013, Mr Stephens’ accountant sent the plaintiffs a revised JTA showing that Mr Stephens had received a surplus of funds of $4,659.27. It follows that the sums claimed by Mr Stephens by invoices SR0014 and SR0015 totalling $120,000 (net of GST) could not have been to cover any invoices from trades that Mr Stephens was liable to pay at the time he sent those invoices.
Is the CMC a “domestic building contract”?
18 If the CMC is a “domestic building contract” within the meaning of the DBC Act, most of the other issues in the proceeding fall away, for the reasons discussed below. The provisions of the DBC Act relevant to the determination of this question are as follows:
“3 Definitions
(1) In this Act—
…
builder means a person who, or a partnership which—
(a) carries out domestic building work; or
(b)manages or arranges the carrying out of domestic building work; or
(c)intends to carry out, or to manage or arrange the carrying out of, domestic building work;
…
domestic building contract means a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor;
…
domestic building work means any work referred to in section 5 that is not excluded from the operation of this Act by section 6;
…
major domestic building contract means a domestic building contract in which the contract price for the carrying out of domestic building work is more than $5000 (or any higher amount fixed by the regulations);
..
4 Objects of the Act
The objects of this Act are—
(a)to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners; and
(b)to enable disputes involving domestic building work to be resolved as quickly, as efficiently and as cheaply as is possible having regard to the needs of fairness; and
(c)to enable building owners to have access to insurance funds if domestic building work under a major domestic building contract is incomplete or defective.
5 Building work to which this Act applies
(1) This Act applies to the following work—
(a) the erection or construction of a home, including—
(i)any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and
(ii)the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property on which the home is, or is to be;
(b)the renovation, alteration, extension, improvement or repair of a home;
(c)any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home;
(d) the demolition or removal of a home;
(e)any work associated with the construction or erection of a building—
(i)on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987; and
(ii)in respect of which a building permit is required under the Building Act 1993;
…
8 Implied warranties concerning all domestic building work
The following warranties about the work to be carried out under a domestic building contract are part of every domestic building contract—
(a)the builder warrants that the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract;
…”
19 In his oral submissions, Mr Carr for the defendant also sought to rely on two definitions of “construct” within the Building Act1993 (Vic) (“Building Act”). The first is in the general definition section (s3) and the second in s137B, which creates an offence (with various exceptions) for an owner-builder to sell a building without having obtained a report on the building from a registered building practitioner and a certificate of the required insurance. These are as follows:
“3 Definitions
(1) In this Act—
construct, in relation to a building, includes—
(a) build, re-build, erect or re-erect the building; and
(b) repair the building; and
(c) make alterations to the building; and
(d) enlarge or extend the building; and
(e) place or relocate the building on land;
137B Offence for owner-builder to sell building without report or insurance
construct in relation to a building, means—
(a) build, rebuild, erect or re-erect the building; or
(b) make alterations to the building; or
(c) enlarge or extend the building; or
(d)cause any other person to do anything referred to in paragraph (a), (b) or (c) in relation to the building; or
(e)manage or arrange the doing of anything referred to in paragraph (a), (b) or (c) in relation to the building;”
20 In relation to the application of the DBC Act, the plaintiffs’ counsel commenced their written submission with a number of largely uncontroversial statements about the operation and effect of the DBC Act, to the effect as follows:
(a) the DBC Act “is clearly intended to interfere with the parties’ freedom to contract on whatever terms they think fit. Leaving to one side the various offences that a builder may commit, section 8 warranties cannot be excluded from a contract that falls within the definition of a domestic building contract” (s132). Other examples include restrictions on releasing liabilities (s10) and precluding provisions that require a dispute to be referred to arbitration (s14);
(b) there is an obvious incentive for builders to seek to avoid the consequences of entering into a contract governed by the DBC Act, because many of the obligations under the DBC Act are burdensome;
(c) it is possible to enter into a “cost plus” contract under the DBC Act in certain circumstances so that a builder can charge a fee or margin, but the contract is still subject to the DBC Act; and
(d) a builder cannot avoid the provisions of the DBC Act by limiting their contractual obligation to “managing and arranging” domestic building work – the definition of “domestic building contract” (and associated definitions) achieves this result, regardless of the terms of the contract.
21 I agree. Turning to the CMC, the plaintiffs’ counsel submitted that it is “admittedly one to manage and arrange domestic building work”. They note that the CMC permits the defendant to “act in every physical respect as though [he was] the builder under the contract to carry out building work”, listing the following activities to be undertaken by the defendant under the CMC:
(a) receiving control of the site (cl1(a) “site” definition, cl5(c), cl26 dot point 5) and control over communications with the trades (cl8(l));
(b) determining the progress of the works (cl5(c), (g)C);
(c) receiving progress payments for the value of the work (cl16, cl 26 dot point 2);
(d) controlling payments for the works (cl10(b));
(e) exclusive power to supervise and direct the trades (cl5(c), (j)); and
(f) selecting the trades (cl5(a)).
22 Moreover, they argue, the CMC makes provision for the defendant to carry out parts of the works himself (cl 6). The plaintiffs submit that in engaging day labour and directing their individual work (as opposed to engaging a trade to effect an identified aspect of the work for a price), Mr Stephens was carrying out the framing work himself. Plaintiffs’ counsel add that, whether that submission is accepted or not, “it is unarguably the case that this contract provides for the carrying out of domestic building work by the builder if necessary”. They submit that, by so providing (and regardless of whether Mr Stephens in fact carried out such work), the CMC fulfills the first part of the definition of a domestic building contract under the DBC Act.
23 In his written closing submissions, counsel for the defendant Mr Carr conceded on this issue that:
“It is not denied that under the wording of the [DBC Act] the Defendant would be a ‘builder’, and the CMC would be a ‘domestic building contract’, but that outcome elides the threshold question of whether or not the [DBC Act] has any role to play in regard to the CMC. The submission of the Defendant is that it does not.”
24 Mr Carr referred to the long title (asserting that this reveals the “interaction” with the Building Act) and the purposes of the DBC Act (in s1(a) and (c)), and noted that the DBC Act does not regulate all domestic building work or all contracts to carry out domestic building work. He cites the example of an owner builder.
25 Mr Carr next identifies a number of provisions of the CMC as relevant to whether it is a domestic building contract under the DBC Act, namely:
(a) the plaintiffs would pay the costs of construction to those who performed the work or supplied materials (cl9(a));
(b) nothing in the CMC imposed upon the defendant an obligation to pay the trade contractors or suppliers, and then to seek reimbursement from the plaintiffs (cl9(b));
(c) as a result of the above provisions, the cost of the building work to the defendant was nil;
(d) the defendant’s obligation was to co-ordinate construction of the two townhouses by the trade contractors (cl5);
(e) the defendant incurred no liability for:
(i) the construction means, methods, techniques, sequences, and procedures employed by a trade contractor,
(ii) the failure of any trade contractor to carry out its work in accordance with its Trade Contract, or
(iii) any breach by a supplier of, or failure by a supplier to comply with a supply agreement (cl7), and
(f) the insurance provisions under cl13 of the CMC address contract works insurance, public liability insurance and workers' compensation insurance, but not domestic warranty insurance.
26 Against that background, in his written submissions, Mr Carr sought to argue against the application of the DBC Act to the CMC by pointing to a number of examples of where the express terms of the CMC are in conflict with the DBC Act. Given the consequences for my finding on this issue for the proceeding as a whole, it is appropriate to set out those submissions in full:
“(i)how can the [DBC] Act imply into the CMC terms in regard to defective work when its own express terms are directly in conflict with the alleged implied terms;
(ii)how can the [DBC] Act imply limits on progress payments when the Defendant never received any money under the CMC for the construction of the townhouses, but rather, on the Plaintiffs own pleadings [citing the plaintiffs’ further amended statement of claim (“FASOC”) at [43] and [48]], only ever received funds to be held on trust;
(iii)how can it be said that the amount the Defendant was to receive under the CMC could not be determined, when the amount he was to receive is clearly set out in Schedule 6 of the CMC, as distinct from funds he held on trust for others;
(iv)that he did not erect or construct a home, he did not renovate a home, he did not perform any landscaping, or do any paving, or construct driveways or garages or fencing. He supervised others to do all of this work; others who were in contract with the Plaintiffs; and,
(v)the [DBC] Act was never meant to apply to the work he did, and the assertion that it does, if upheld, would do great violence to the allocated risk which the parties have agreed under the terms of the CMC.”
27 Mr Carr in his written submissions then turns to s5 of the DBC Act arguing that the definition in that section “addresses the work being done not the Works, i.e. its application is not defined by the nature of the structure under construction, but rather by the work done by any individual on a building site”. He adds that “there is no definition of the word ‘construct’” in the DBC Act. However, in his later oral submissions, Mr Carr referred me to the definitions of that term in the Building Act set out above, arguing that these reinforce that the focus is on the actual work being done by the person concerned, not the nature of the structure being constructed. Mr Carr submitted that the plain meaning of the words “the erection or construction of a home” mean that the DBC Act applies “to those who do just that, erect or construct, but not those who manage that work”.
28 Mr Carr referred to two authorities in support of his arguments on the application of the DBC Act to the CMC. The first was Mrocki v Mountainview Prestige Homes Pty Ltd[1] (“Mrocki”), which he argued drew a similar distinction to the one he was urging between those doing the work and those managing it. He also posited an alternative proposition in relation to s5 of the DBC Act, being that I should “read down” the meaning of “arrange or manage” in the definition of “domestic building contract”. He submitted that this was the approach taken by the majority of the Victorian Court of Appeal in Shaw v Yarranova Pty Ltd (“Shaw”)[2] in deciding whether an off-the-plan contract for the sale of an apartment was a major domestic building contract. He said I could also apply the “mischief rule” referred to by Chief Justice Warren (in dissent) in the same case.[3]
[1][2010] VSC 624.
[2][2006] VSCA 291 at [83].
[3]Ibid at [12].
29 Finally, on the issues of warranties and domestic building insurance, Mr Carr submitted that the provisions of ss137B and 137C of the Building Act were applicable to the plaintiffs with the result that, on the sale of the townhouses, the plaintiffs were obliged to have obtained both an inspection report and warranty insurance. Further, he argued, the statutory warranties under s137C(1) of the Building Act were implied into any contract of sale. He referred in this context to the recent VCAT decision of Grilli v Downing.[4]
[4][2020] VCAT 704.
30 I asked Mr Carr in the course of oral submissions how these arguments overcame the clear reference in the definition of “domestic building contract” in the DBC Act to a contract to “arrange or manage the carrying out of, domestic building work”. As I understood it, his answer was that the contract under consideration must first be a contract to “construct” a building. The CMC, he argued, was not such a contract. It was merely a contract to arrange and supervise others to do the work, which others were in contract with the plaintiffs, through him as their agent. And unless the contract is a contract to construct a building, “the [DBC] Act simply doesn’t apply to the contract. This work is outside its realm”.
31 In my view, the defendant’s arguments seeking to avoid the application of the DBC Act are misconceived. Indeed, the purpose of the DBC Act is to do the very thing that Mr Carr submitted it should not do, namely, do “violence” to the allocated risk which the parties have agreed to under their contract. As plaintiffs’ counsel submitted, the definition of a domestic building contract contained in s3 of the DBC Act was designed to prevent avoidance of the Act’s operation by legal characterisation in a contract:
“Where the builder undertakes to carry out the works, he or she falls under a legal obligation to achieve the end result of a building that conforms to the plans and specifications. This is a normal building arrangement. If the builder seeks to avoid that obligation and assume responsibility only for doing the managing and arranging required to attain the result, the [DBC] Act treats the agreement as a DBC with the same consequences as though it fell into the first category. The builder becomes subject to the warranties in section 8, even though the contract imposes no obligation to achieve the completed building.”
32 Adopting this language, Mr Carr’s argument was in effect that, unless the contract makes provision for the end result of a building, it is not a contract for “construction” as that term is used in s5 of the DBC Act, with the result that the contract is not caught by the Act. The difficulty with the argument is that it requires much more than a “reading down” of the words in the definition of a domestic building contract: “a contract…to arrange or manage the carrying out of, domestic building works” (emphasis added). It requires, in substance, “reading out” those words. The definitions of “construct” in the Building Act relied on by Mr Carr do not take the issue any further. They in no way cut across the express extension of the definition to cover a contract to “arrange or manage” works (including the erection or construction of a building).
33 In my view, both the legislative purpose and meaning of the words could hardly be clearer. It is well established that the objective of the DBC Act “is remedial or beneficial so that it should be interpreted to ‘give the fullest relief which a fair meaning of its language will allow’”.[5] And, as the defendant admits, the CMC is unquestionably a contract to manage and arrange a domestic building work. No more need be said on this issue. However, for completeness (and against the background of the legislative purpose referred to), I agree with the further submissions of plaintiffs’ counsel to the effect as follows (which include responses to Mr Carr’s submissions set out above):[6]
[5]Imerva Corporation Pty Ltd v Kuna [2017] VSCA 168, per Tate JA at [87], citing Waugh v Kippen (1986). 160 CLR 156, 165.
[6]See above at [57].
(a) The CMC makes express provision for the defendant to carry out parts of the works himself, and thus engages the first part of the definition of domestic building contract in the DBC Act, regardless of whether it is also a contract to arrange or manage the work.
(b) Any argument that a contract is excluded from the operation of the DBC Act where the party arranging or managing the building work is the agent for the owners, cannot be sustained. There is nothing in the DBC Act itself to support the argument, and there is no basis for reading in such a dramatic limitation on the operation of the DBC Act. If the simple device of an agency were sufficient to defeat its operation, the clear purpose of the DBC Act would be seriously undermined. Indeed (as plaintiffs’ counsel submit) some form of agency relationship is likely to be present in most contracts to “arrange or manage” domestic building work.
(c) If (as I have found) a contract to manage or arrange domestic building work falls within the plain language of the DBC Act, the consequences laid down in the Act apply. The builder (in this case the defendant) has obligations imposed upon him, whether he agreed to them or not under the CMC. Any part of the CMC that is inconsistent with the terms of the DBC Act will be unenforceable (DBC Act s132). There is no basis to read down the legislation where the language is quite clear.
(d) The defendant’s assertion that he did not physically carry out the work himself is beside the point. Very few builders physically carry out work themselves: building companies never do. They are none the less “builders” within the meaning of the DBC Act.
(e) The Building Act is predicated on the need for major domestic building work to be carried out by someone, who can be held to account for the quality of the work (Building Act s24A(1)(c) in relation to a building permit and certificate of insurance and s24B(4) and s137A in relation to insurance). Putting to one side for the moment the exception relating to owner builders (not relevant here), if the defendant was not the builder of these townhouses, then no-one was.
(f) Further, if the CMC were not a domestic building contract within the meaning of the DBC Act, there would be no warranties imported into the CMC by DBC Act s8. If there were no such warranties, it would not be possible for the defendant to breach them. If there was no breach of the warranties, there can be no loss occasioned by such a breach. If there is no loss, the insurance procured by the defendant would not indemnify any of the owners for anything. Thus, Mr Carr’s argument undermines the operation of the DBC Act, not only in respect of the plaintiffs but also against subsequent owners who would be left without recourse (see DBC Act s9).
(g) The defendant’s suggestion that he or his company procured Home Owners Warranty Insurance (“HOW insurance”) when not obliged to, is also without substance. The evidence is that he procured that insurance using the plaintiffs’ money. Further, the HOW insurance was an essential pre-requisite to obtaining the building permit (DBC Act s24A). A construction of the DBC Act that facilitated such fundamental breaches of the regulatory regime is, for that reason alone, unsustainable.
34 Mr Carr’s submission that the insurance issue is answered by ss137B and 137C of the Building Act because the plaintiffs were “owner builders” and obliged to secure insurance before selling the townhouses, is not supported by the facts. First, it is contradicted by the fact that the defendant secured HOW insurance as discussed above. As I have already observed, had this not been done, no building permit for the townhouses could have been issued and the parties would have been undertaking work in serious breach of both the DBC Act and the Building Act. Second, the way in which the parties conducted themselves in relation to the construction of the townhouses points overwhelming to the defendant, not the plaintiffs, fulfilling the role of “builder”. Third, an owner carrying out the work themselves as an “owner builder” must first obtain a certificate of permission form the Victorian Building Authority established under s193 of the Building Act. This was not done.
35 Finally, the authorities relied on by Mr Carr do not assist the defendant, again for essentially the reasons given by plaintiffs’ counsel. The decision in Mrocki chiefly involved questions of construction of a contract that had been created using a standard form domestic building contract and modified in an attempt to create some form of management or supervision agreement. The court accepted that the result was a contract to manage the works, not carry them out. However, his Dixon J at [114] held that:
“Section 8 of the DBC Act applies to the Contract because the statutory warranties are given by a “builder” about the work to be carried out under a domestic building contract. “Builder” includes a person who manages or arranges the carrying out of domestic building work and a “domestic building contract” means a contract to arrange or manage the carrying out of domestic building work. Mountview is a builder for the purposes of the Act by reason of being a party to a construction management contract, which is a contract to manage the carrying out of domestic building work. The work being managed falls within the description of building work to which the Act applies in s.5 of the DBC Act.”
36 In that same decision, Dixon J distinguished the distinction drawn in Shaw and sought to be relied upon by the defendant here. His Honour observed (at [15]):
(a) that decision dealt with the question of whether a developer selling an apartment as vendor “off the plan” under an REIV standard form of sale of land contract, was a person who was contracting to manage and arrange building work;
(b) the sale contract included standard terms providing for the vendor to enter into a major domestic building contract with “a Builder for the Works” to construct the residential tower – an assignee of the vendor later entered into such a contract with a major construction company;
(c) the Court of Appeal confined the definitions of “managing and arranging” and “carrying out” refer to the practical activities involved in the work of constructing a building; and
(d) the Court of Appeal held that the assignee of the vendor was not involved in managing the practical activities of constructing a building.
37 In my view, Dixon J’s analysis is correct and applies equally to the facts of this case. The Court of Appeal in Shaw read down the words “arrange or manage” in s3 of the DBC Act “to exclude contracts of sale which contemplate that a building or home will be constructed under a major domestic building contract” (Neave JA at [83]). Here, the CMC is not a contract of sale that contemplates a further building contract (which would itself confer all the protection to owners under the DBC Act). It is the only contract between the relevant parties providing for the construction of the townhouses. And there is no doubt that under the terms of the CMC, the defendant was managing and arranging all of the practical activities involved in constructing those townhouses.
Does s40 of the DBC Act confer a right of recovery against the defendant?
38 Section 40 of the DBC Act is concerned with setting limits on progress payments under a major domestic building contract. I have found above that the CMC is a such a contract. Section 40(1) defines “base stage”, “frame stage”, “lock-up stage” and “fixing stage”. Relevantly, “frame stage” means the stage when a home’s frame is completed and approved by a building surveyor. It is not in dispute that the building surveyor had not approved the frames for the townhouses at the time the defendant ceased work and the CMC was terminated. Sections 40(2) to (6) provide as follows:
“(2)A builder must not demand or recover or retain under a major domestic building contract of a type listed in column 1 of the Table more than the percentage of the contract price listed in column 2 at the completion of a stage referred to in column 3.
Penalty: 50 penalty units.
TABLE Column 1 Column 2 Column 3
Type of contractPercentage
of contract price
StageContract to build to lock-up stage 20% Base stage " 25% Frame stage Contract to build to fixing stage 12% Base stage " 18% Frame stage " 40% Lock-up stage
Contract to build all stages 10% Base stage " 15% Frame stage " 35% Lock-up stage " 25% Fixing stage
(3)In the case of a major domestic building contract that is not listed in the Table, a builder must not demand or receive any amount or instalment that is not directly related to the progress of the building work being carried out under the contract.
Penalty: 50 penalty units.
(4)Subsections (2) and (3) do not apply if the parties to a contract agree that it is not to apply and do so in the manner set out in the regulations.
(5)If a court finds proven a charge under subsection (2) or (3) against a builder, it may order the builder to refund the building owner some or all of the amount the building owner has paid the builder under the contract.
(6)This power is in addition to the power the court has to impose any other penalty.”
39 Sections 132 and 133 of the DBC Act provide:
“132 Contracting out of this Act prohibited
(1) Subject to any contrary intention set out in this Act –
(a)any term in a domestic building contract that is contrary to this Act, or that purports to annul, vary or exclude any provision of this Act is void; and
(b)any term of any other agreement that seeks to exclude, modify or restrict any right conferred by this Act in relation to a domestic building contract is void.
(2)However, the parties to a domestic building contract may include terms in the contract that impose greater or more onerous obligations on a builder than are imposed by this Act.
133 Effect of failure to comply with a requirement of the Act
A failure by a builder to comply with any requirement of this Act in relation to a domestic building contract does not make the contract illegal, void, or unenforceable, unless the contrary intention appears in this Act.”
40 Thus, as plaintiffs’ counsel submitted, the DBC Act imposes a staged set of rules for payments that may be demanded under a domestic building contract, namely:
(a) three regimes for payment of percentages in accordance with the achievement of identified stages of the works, depending upon the scope of the works under the contract;
(b) if the contract does not fall within any of the three types of contract in the table of s40(2), s40(3) provides that the builder may not demand or receive any amount or instalment “not directly related to the progress of the building work being carried out under the contract”; and
(c) in any case, the parties may agree to a payment regime that does not comply with (a) or (b) if the parties agree that it is not to apply and do so in accordance with the regulations (DBC Act s40).
41 I agree with plaintiffs’ counsel that it is not in dispute that the CMC provided for the construction of all stages of the two townhouses. Thus, in my view for the reasons below, the effect of s40 of the DBC Act is that the defendant was entitled to 10% of the contract price at base stage, 15% at frame stage, 35% at lock-up and 25% at fixing stage. The definition of “contract price” in s 3(1) of the DBC Act expressly includes “the amount the builder is to receive and retain under the contract”, “the amount the builder is to receive under the contract for payment to any other person” and “the amount any third person is to receive…directly from the building owner in relation to the domestic building work to be carried out under the contract”.
42 Accordingly, there can be no suggestion that all payments made by the plaintiffs to the defendant formed part of the “contract price” for the purposes of the application of s40 of the DBC Act. I do not overlook in reaching that conclusion Mr Carr’s submission that all the defendant did was hold money provided by the plaintiffs on trust for payment to the trades. In my view, even assuming the imposition of a trust as described by Mr Carr, this does not alter the character of the funds as being “an amount the builder is to receive under the contract for payment to another person”. Indeed, the existence of a trust is entirely consistent with that characterisation.
43 As I am satisfied that the CMC is a contract listed in the table in s40(2), s40(3) of the DBC Act does not apply (I discuss below Mr Carr’s submissions to the contrary). Turning to s40(4) of the DBC Act, unlike the position considered by the Court of Appeal in Imerva Corporation Pty Ltd v Kuna,[7] (“Imerva”) discussed further below, there is nothing in the CMC or the dealings between the parties that could be said to have attracted the operation of the exception in that subsection. The reasoning in Imerva leaves no doubt about the importance of close adherence to the regime for compliance with the regulations before s40(4) is engaged, and nothing of that kind occurred here. The defendant did not seek to argue otherwise.
[7][2017] VSCA 168.
44 Plaintiffs’ counsel submit that the effect of these findings is that, by operation of s40(2) of the DBC Act, the defendant was not entitled to “demand, recover or retain” more than 10% of the contract price (if the frame had not been approved) or 25% (if it had). The plaintiffs’ pleaded case is that as at January 2013, the works had not reached the frame stage as defined in s40(1) of the DBC Act, with the result that the defendant was entitled pursuant to the CMC to “demand, recover or retain… no more than 10% of the contract price, namely $104,436” (being 10% of the figure in the 14 December Estimate, including GST). They then plead that the defendant demanded and they (the plaintiffs) paid a total of $567,600, “being $463,065.24 more than 10% of the contract price”. They allege that they are entitled to recover the amount of that overpayment from the defendant. However, at trial they (in substance) waived any entitlement to recover more than $171,103 of that $463,065.24, as explained below.
45 The defendant resists the claim under s40 on essentially two bases. The first, as argued by Mr Carr in oral submissions, is that the CMC “just doesn't fit in any way with the provisions of section 40 because it's not a contract where a payment of funds can be regulated by certain stages”. Mr Carr submitted that the CMC “provides for the payment of funds in advance of payment to trades, not once a certain stage is completed”. This is analogous to the defendant’s argument on the application of the DBC Act to the CMC more generally, and is equally flawed.
46 The question of the application of the DBC Act (including s40) is not determined by ascertaining whether the contract concerned happens to neatly fit the payment structure provided by the DBC Act. As previously discussed, the DBC Act is ameliorative or protective legislation. The whole point of s40 is to superimpose a payment regime, regardless of what the contract provides. If any further support for this proposition were needed, it is provided by the prohibition on contracting out in s132 of the DBC Act. As plaintiffs’ counsel submitted, the DBC Act can impose limits on the payments the defendant can receive if it is a domestic building contract, as defined: the DBC Act “is not concerned to preserve the parties’ bargain but to alter it”.
47 The defendant’s second basis relies on s40(5) of the DBC Act. The defendant submitted that:
(a) s40 of the DBC Act is directed towards the imposition of penalties for the breach of its terms, and does not give rise to a private right either in contract by way of the implication of a term, or by way of restitution;
(b) the plaintiffs have not alleged that such a remedy exists; and
(c) the plaintiffs have not made any application for, nor any reference to, the provisions of s40(5) of the DBC Act which might, possibly, have afforded them the remedy they seek.
48 In oral submissions, Mr Carr argued that there is no automatic right of an owner to say to a builder that you have wrongfully retained those funds and therefore you must give them back. He said that the plaintiffs’ claim fails at the pleadings stage, because there is no cause of action that arises from the operation of s40 of the DBC Act. A right to recovery only arises where s40(5) applies. Mr Carr further argued that the claim is essentially a claim for restitution dressed up as a pathway through s40, and that the High Court in Mann v Paterson Constructions Pty Ltd[8] recently made clear that “where you have a contract, you don't get a claim for restitution”.
[8][2019] HCA 32, (2019) 373 ALR 1.
49 On this issue, plaintiffs’ counsel argued that if a builder has received more than the amount permitted by the statute, he or she cannot retain it. Section 40(2) is explicit in providing that a builder must not “demand or recover or retain” more than the amount listed in the table in the subsection. The plaintiffs continue:
“It follows therefore that the builder may not legally retain any amount in excess of that prescribed by the Act. This is regardless of whether consideration has been received for that excess amount.
The Plaintiffs in this case do not need to establish any breach of contractual term, whether agreed or imposed by statute, nor any breach of common law duty. They have paid to the Defendants monies that the Defendants are not entitled to retain, and the Plaintiffs are therefore entitled to recover it. The effect of this provision upon the builder is harsh, and can work a windfall upon the owner. That is a consequence of the consumer protection character of this legislation, recognised by the Court of Appeal in [Imerva].”
50 In my view, the plaintiffs’ submissions on the operation of s40 of the DBC Act must be accepted. I have referred above to my reasons for rejecting the first basis relied on by the defendant. In relation to the argument that s40(5) provides the only route to recovery for a breach of s40, that too cannot be sustained. Like many similar provisions in ameliorative legislation imposing penalties for breach, in my view, the clear purpose of s40(5) is to allow an injured building owner to piggy-back any criminal prosecution against a defaulting builder and seek an order for recovery in the prosecution proceeding without the need to bring a separate civil claim. To my mind, the authorities discussed below make clear that s40(2) of the DBC Act creates a discrete obligation on a builder who has received amounts in excess of the entitlements in the table to disgorge those amounts, regardless of any criminal prosecution.
51 In Imerva the owners had, objectively, agreed to vary the s40(2) payment regime, but the parties had not done so in the manner required by the regulations and so had not complied with the requirements of section 40(4). The court was not called upon to decide directly whether s40(2) gave rise to a private right of recovery. However, the court plainly proceeded on the assumption that, if there been a failure to comply with s40(2), the owners were entitled to recover the amount of the overpayment, because the builder could not, in law, retain it. I agree with plaintiffs’ counsel that there was no controversy about that point because the DBC Act is explicit: the corollary of not being permitted to retain money is that one must give it back.
52 In particular, Tate JA (with whom Kyrou JA and McLeish JA agreed) observed:
“Section 40 of the Act extends the prohibition to a builder ‘retain[ing]’ such a progress payment without the necessary acknowledgement. The Kunas rely on this legislative history to support the proposition that the Act seeks to enhance the protections afforded to consumers. They also emphasise that the retention of improperly demanded progress payments (which they allege occurred here) creates an exposure to criminal sanction on a continuing basis.”[9]
[9][2017] VSCA 168 at [77].
53 And later (under the heading “What are the civil consequences of non-compliance?) her Honour held that:
“Non-compliance with reg 12(a) carries both criminal and civil consequences. As mentioned, non-compliance means that, pursuant to s 40(2), Imerva was not entitled to demand, recover, or retain more than the percentage of the contract price specified in the prescribed payments regime on pain of exposure to a criminal pecuniary penalty. However, as the Tribunal acknowledged and the judge confirmed, Imerva remains entitled to the sequence of payments specified in the prescribed payments regime under s 40(2) of the Act, insofar as the stages of construction identified under the Act were completed. In other words, the non-compliance does not invalidate the Contract as a whole…For the reasons given, Imerva cannot rely upon s40(4) to avoid the prohibition in s 40(2). However, s 133 preserves the validity of the Contract given that no contrary intention appears in s 40; the Contract price remains and the progress payments revert to the statutory regime as expressed schematically in the Contract in Method 1. The Tribunal’s finding that Imerva owed a refund to the Kunas97 was made within that context”[10]
[10][2017] VSCA 168 at [98].
54 Finally, on the question of whether Imerva could raise an estoppel to avoid the effect of s40(2), Tate JA held:
“The circumstances here are that Imerva, the person who engaged in conduct in contravention of a statutory prohibition, by demanding, recovering and retaining progress payments not prescribed under the Act, is seeking to enlist the assistance of equity to preclude the persons affected by the illegality, the Kunas, from asserting or relying on that illegality.”[11]
[11]Ibid at [109].
55 In Cook’s Construction Pty Ltd v 007 298 633 Pty Ltd[12] (“Cook’s Construction”) the Queensland Court of Appeal (unlike the Victorian Court of Appeal in Imerva) was required to determine expressly whether a failure by a subcontractor to comply with s42(3) of the Queensland Building Services Authority Act 1991 (Qld) gave rise to a right of recovery in the owner. Notably, s42(3) of the Queensland legislation was even less explicit than s40(2) of the DBC Act, in that it did not expressly preclude a right to “retain” funds received in excess of the statutory entitlement. Section 42(3) of the Queensland Act provided that an unlicensed builder who had carried out work in contravention of the Act “is not entitled to any monetary or other consideration for doing so”. The appeal challenged orders that the builder repay to the owner more than $15 million in respect of works carried out.
[12](2009) 254 ALR 661.
56 Section 42(4) of the Queensland Act permitted an unlicensed builder to seek reasonable remuneration in respect of the work, notwithstanding s42(3), if it met certain criteria. The appellant subcontractor contended that for the head contractor to recover the payments, it had to show that the subcontractor would not have been entitled to retain the amounts paid by virtue of s42(4). Otherwise, it argued, there would be no relevant mistake on the part of the owner to found a restitutionary claim.[13] The majority (Keane JA (as he then was) with Daubney J agreeing, Fraser JA not deciding) cited at length and accepted as correct an earlier decision of McPherson JA,[14] which had held that the effect of s42(3) was that a builder who was “not entitled” to any monetary consideration was equally not entitled to retain it as against the owner. The mere fact that the builder had received money it was not entitled to, entitled the owner to recover it. There was, accordingly, no need to establish any other factual matter to render it unjust for the builder to retain the money, and the owner could recover the payments.
[13](2009) 254 ALR 661 at [31].
[14]Marshall v Marshall [1999] 1 Qd R 173.
57 Keane JA held:
“On the analysis of McPherson JA referred to in the passage cited in para [38] above, mistake on the part of the payer as to its obligation on the payee’s entitlement is not an essential element of the builder’s disentitlement to receive or retain payment or the payer’s reciprocal entitlement to recover. On this analysis, unless the respondent was in pari delicto with the appellant, the respondent was entitled to recover the moneys paid by it to the appellant as moneys had and received by the appellant to the use of the respondent.”[15]
[15](2009) 254 ALR 661 at [58].
58 Keane JA also expressly confirmed in Cook’s Construction that the right to recovery arises by virtue of the relevant legislation, not as a species of restitutionary relief in equity. In that regard, I took plaintiffs’ counsels’ references in submission to “restitution” as a shorthand for the practical effect of their clients’ claim under s40(2) of the DBC Act (that is, restoring the amounts paid), not as referring to an equitable claim. In dealing with a submission by the appellant builder that the respondent’s counterclaim was a restitutionary claim which is barred if restitutio in integrum is not possible, Keane JA held[16] (emphasis added, citation omitted):
There are a number of points to be made about this submission. The first is that the only decisions which support the necessity for restitutio in integrum are concerned with cases of rescission of contract, and the respondent’s counterclaim does not depend upon the exercise of a right to rescind the subcontract. Accordingly, no question of a mutual restoration of the parties to their pre-contractual position arises
Secondly, the respondent’s cause of action was to recover moneys paid by the respondent to the appellant in circumstances where it was a consequence of s 42(3) of the Act that those moneys were recoverable by the respondent. Since the respondent’s counterclaim arose by virtue of the terms of the Act, the question whether restitutio in integrum was a condition of the appellant’s liability to refund the moneys to which it has no title was to be determined against the appellant as a matter of legislative intention. As Dixon CJ explained in Mayfair Trading Co Pty Ltd v Dreyer, while principles of equity may require restitutio in integrum as a condition of making orders to restore parties to their respective pre-transactional positions, that position may be altered by the terms of the legislation which allows the transaction to be impugned. To argue that the absence of restitution (in money or money’s worth) is fatal to the respondent’s counterclaim is necessarily to ignore that s 42(3) of the Act affords the basis for the recovery of money paid by any owner to an unlicensed builder. To the extent that s 42(4) ameliorates the position of the builder, it is an exhaustive statement of that amelioration.
[16](2009) 254 ALR 661 at [73] and [74].
59 Having regard to these observations, I am satisfied that there is no failure by the plaintiffs to sufficiently plead their claim in reliance on s40(2) of the DBC Act.
60 Dealing finally with Mann v Paterson Constructions Pty Ltd,[17] in my view, the defendant’s reliance on that authority is misplaced. This is not a case where the plaintiffs are seeking to advance a claim for restitution in substitution for or in excess of their rights under the CMC. On the contrary, they are seeking to enforce their rights under the contract, as modified by statute. Indeed, in dealing with the third ground of appeal in that case, the plurality (albeit in different circumstances to the present) clearly recognised the primacy of the parties’ rights and obligations as provided for in the DBC Act.
[17][2019] HCA 32; (2019) 373 ALR 1.
Are the plaintiffs entitled to the relief they seek under s40(2) of the DBC Act?
61 At first blush, the plaintiffs’ primary claim for relief seems deceptively simple and, perhaps, surprising. I note that Keane JA said something similar about the result in Cook’s Constructions.[18] I am also conscious that accepting that claim effectively relieves me of the onerous task of dealing the many difficulties with the evidence of loss and damage discussed in the submissions of the parties. However, the defendant has not identified any material flaw in the claim and I have been unable to discern any.
[18](2009) 254 ALR 661 at [7].
62 The claim is in substance that, having answered the first two questions favourably for the plaintiffs, they are entitled to the full amount they paid to the defendant in excess of his entitlement under s40(2) of the DBC Act. Thus, as the townhouses did not reach frame stage, the defendant was entitled to no more than 10% of the contract price. The CMC itself does not state a contract price. It defines “Cost of the Works” as meaning “costs and expenses incurred by the Construction Manager and the Principal in connection with the construction of the Works”. However, I am satisfied that (as the plaintiffs contend) the “contract price” within the meaning of the DBC Act is properly ascertained by reference to the 14 December Estimate. The defendant has not argued for an alternative approach to determining the “contract price” under s40(2).
63 As noted above, the plaintiffs plead that the defendant demanded, and they paid, a total of $567,600, a figure which does not appear to be in dispute (defendant’s amended defence and counterclaim dated 25 June 2020 at [20]), which is more than 10% of the contract price. In Cook’s Constructions, the subcontractor was ordered to repay almost all of the $15,528,924 it had been paid for the earthworks and concrete works it had performed under the subcontract. Similarly in this case, the plaintiffs are entitled to an order requiring the defendant to repay $463,065.24 to the plaintiffs. Notably, this figure is not based on any assessment of the plaintiffs’ actual loss based on the true value of the work performed or paid for by the defendant, any defects in that work or other similar considerations.
64 However, the plaintiffs submit as follows:
The Plaintiffs in this case do not need to establish any breach of contractual term, whether agreed or imposed by statute, nor any breach of common law duty. They have paid to the Defendants monies that the Defendants are not entitled to retain, and the Plaintiffs are therefore entitled to recover it. The effect of this provision upon the builder is harsh, and can work a windfall upon the owner. That is a consequence of the consumer protection character of this legislation, recognised by the Court of Appeal in [Imerva].
The Plaintiffs do not seek recovery of all that they might, because of that harshness. They limit the amount they seek to $171,103 [being a figure based on the amount paid by the plaintiffs less what Mr Naughton assessed as value of the work performed, allowing for defects]. From the legal perspective, that limit is arbitrary. It amounts to no more than an exercise in restraint. The Plaintiffs do not have to prove the matters that underpin their calculation to substantiate them.
65 Plaintiffs’ counsel confirmed in oral submissions that this was the plaintiffs’ primary claim and that it effectively subsumed all of the plaintiffs’ alterative loss and damage claims, including for defects, misleading and deceptive conduct, breach of fiduciary duty, amounts improperly claimed by the defendant and overpayments. They confirmed that if I accepted their submissions on their primary claim, the figure of $171,103 was the full extent of the monetary sum their clients were seeking in the proceeding.
66 The defendant’s written submissions on this issue sought to answer this claim by attacking the way in which the plaintiffs had calculated the figure of $171,103. In substance, the defendant noted that it was based on Mr Naughton’s calculation of the value of the work done by the trade contractors under Mr Stephen’s supervision, and then went on to point out the numerous flaws in Mr Naughton’s analysis. Mr Carr’s oral submissions on this issue did not take the matter any further. Importantly, the defendant’s submissions do not engage with the plaintiffs’ concession that, from a legal perspective, the $171,103 is an arbitrary figure. It is no more or less than what the plaintiffs were willing to accept in full satisfaction of a claim that would otherwise sustain an order that the defendant repay $463,065.24.
67 In my view, the reason the defendant has not sought to engage with this aspect of the claim is simply that, having failed on the first two questions, there is no further basis for rejecting the plaintiffs’ claim for the $463,065.24. And thus there is equally no basis for rejecting the plaintiffs’ unilaterally reduced claim of $171,103. I will therefore order that there will be judgment for the plaintiffs on their claim in the sum of $171,103, plus interest on that sum.
68 I will hear further from the parties on the date from which interest should run, but my preliminary view is that it should be calculated at the statutory rate from the date of the last payment by the plaintiffs, being 27 November 2012. This was the approach accepted by the parties in Cook’s Constructions, and not challenged on appeal.[19] I would also note that the defendant in this case probably cannot avail itself of the argument advanced by the appellant in Cook’s Constructions for no order for interest. That argument was that, because the respondent had received value for its payments of over $15 million, it was not relevantly out of pocket. In this case, by reducing the sum they are willing to accept on their claim, the plaintiffs are leaving the defendant with (on the plaintiffs’ case) the full value of work done and arranged by the plaintiff. Even on the defendant’s case, it represents a substantial proportion of that value. The argument was, in any event, unsuccessful on appeal.[20]
[19](2009) 254 ALR 661 at [84].
[20](2009) 254 ALR 661 at [84]-[87].
What becomes of the plaintiffs’ alternative claims?
69 In view of my findings above, it is unnecessary for me to decide each of the plaintiffs’ alternative claims, but I will nevertheless make some brief observations concerning those claims and the evidence in support, as follows:
(a) The plaintiffs’ claims for breach of contract based on the failure to complete the works within 28 weeks and in accordance with the 14 December Estimate, are problematic. Essentially for the reasons submitted by the defendant, I am not satisfied that these were terms of the CMC.
(b) To the extent that the plaintiffs’ remaining allegations of breach of the CMC rely on the terms implied by s8 of the DBC Act, they at least have a solid foundation in the CMC. However, again, I am inclined to agree with the defendant that the evidence of Mr Stephen’s negligence or a failure to manage the works other than in a proper or workmanlike manner, is less than compelling. In particular, I agree that Mr Damiani’s evidence painted a confusing picture of what were costs to rectify defective work, and what were costs to complete the development (or to deal with damage occasioned at the site after the defendant ceased work). And I accept the defendant’s submissions that these gaps in Mr Damiani’s evidence undermined a number of Mr Naughton’s conclusions.
(c) Indeed, I considered Mr Naughton’s evidence more generally was tarnished due toMr Carr’s cross-examination. Had it been necessary to make findings on Mr Naughton’s evidence, I expect that I would have placed little or no reliance on Mr Naughton’s conclusions to the extent that they relied on matters of opinion, as distinct from his analysis of objective facts. Having said that, it is likely that some of the work on Mr Stephen’s watch could properly be described as unworkmanlike (particularly aspects of the framing work), but the cost of remedying those failures is likely to have been in the $1,000s, rather than the $10,000s.
(d) Turning to the claims of misleading and deceptive conduct, again, in my judgment, the defendant’s submissions in answer to these claims have considerable force. First, the only representation relied on by the plaintiffs with any real substance is that based on the 14 December Estimate. The evidence of the second and third representations (28(b) and 28(c) of the FASOC) is poor, and I agree with the defendant that the fourth representation was not shown to be false or misleading.
(e) Returning to the 14 December Estimate, I agree with the defendant that it was based on very limited information about the specifications for the build, and that this was known to the plaintiffs. It follows that I also agree with the defendant that the 14 December Estimate was, on balance, not a representation as to a future matter (namely the likely final cost), but rather a qualified opinion, based primarily on indicative quotes obtained by the defendant and his experience in building similar projects. Further, if it can be characterised as a representation as to a future matter, the weight of the evidence is that it was reasonably based, giving the lack of detailed specifications. In this regard, I refer particularly to Mr Stephen’s earlier estimate provided at the meeting in October or November 2011, incorporating a square metre rate.
(f) Finally on the misleading and deceptive conduct claims, I am not satisfied that the plaintiffs have adequately articulated or evidenced the counterfactual, namely, what they would have done if the 14 December Estimate had not been provided. Accordingly, the evidence of the loss and damage suffered by the plaintiffs as a result of the alleged misrepresentations is elusive.
(g) I would likely have found for the plaintiffs on their allegation of breach of fiduciary duty as pleaded in their current pleading. The defendant has effectively admitted that funds paid to him were held on trust for payment of debts incurred or to be incurred, and there is some real doubt about whether particular invoices included in his JTA were ever incurred in relation to the works, or paid. However, without diminishing the seriousness of the allegations, the amounts involved were relatively modest and are subsumed in the primary claim, as noted above.
(h) To the extent that the plaintiffs’ claims rely on the proposed second FASOC, leave to file and serve that amended pleading is refused, for the reasons below.
Should the plaintiffs have leave to further amend their statement of claim?
70 At the commencement of the trial, the plaintiffs applied for leave to file and serve a second FASOC adding claims for sums which they allege were claimed by the defendant in the course of the works that had not been incurred (see paragraphs 53 to 56 of the proposed second FASOC (“new claim”)). The total value of the new claim is $38,553.78, and the plaintiff seeks an order for this sum or, alternatively, an accounting.
71 It is trite that the grant of leave to amend a statement of claim is discretionary. Further, the Court of Appeal recently affirmed the application of the principles in Aon[21] and confirmed that the question in considering an application for amendment is “what do the interests of justice dictate”?[22] It also confirmed the that the interests of justice will vary depending on the circumstances of one case to another.[23]
[21]Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175.
[22]Traffic Technique Pty Ltd v Burgmann & Anor [2020] VSCA 319 at [52].
[23]Ibid at [58].
72 Mr Carr in oral submissions identified a number of considerations that weigh against the grant of leave. These are (in summary):
(a) the evidence established that in early 2013, Mr Stephens provided to Mr Cameron approximately 270 pages of invoices, which Mr Cameron later passed to Mr Alesci;
(b) Mr Alesci gave evidence that they had remained in storage with his secretary until they were given to a quantity surveyor in 2017, but he still had not looked at them;
(c) the plaintiffs have had these documents and the final JTA since March 2013;
(d) the plaintiffs have not adequately explained why they could not have advanced the claims they now seek to agitate at a much earlier stage based on this material;
(e) the proceeding was commenced on 12 February 2018, two days short of the six-year anniversary of the date of the CMC;
(f) the writ and first version of the statement of claim were served 11 months later;
(g) the new claims were not added when the plaintiffs filed their amended statement of claim in May 2019, nor when they served the FASOC one week before trial;
(h) Mr Carr received the proposed second FASOC moments before 10.30am on the first day of trial;
(i) given the very long delay since the events in question, it is likely to be very difficult (if not impossible) for the defendant to source bank records and other documents necessary to properly answer these new claims; and
(j) given the delay and the likely difficulty in sourcing bank records and other relevant documents in answer to the new claim, the defendant will suffer profound prejudice if there is a need to have a separate hearing (including in the form of an accounting) on these new claims.
73 Plaintiffs’ counsel submitted that the plaintiffs only became aware that they had this new claim when the defendant discovered all of the invoices that he relies on, about two weeks before trial. Further aspects of the new claim only surfaced when the defendant discovered bank statements one week before trial. Plaintiffs’ counsel further argued that if I were concerned that there had been insufficient opportunity for the defendant to properly answer what are well founded and serious allegations of misappropriation, then the appropriate remedy is to allow the amendment and to order, as is sought, an accounting carried out as between them, which does not require another trial.
74 Balancing these competing considerations, I agree with Mr Carr that the plaintiffs have not adequately explained why they did not take steps at a much earlier stage in the proceeding to investigate the facts giving rise to the new claim. It is not clear why they failed to undertake a reconciliation of the sums claimed in the defendant’s final JTA at least as against the invoices they apparently already had in their possession, but chose to ignore. Further, given the time that has elapsed since the events in question (due largely to the plaintiffs’ decision to delay commencement and service of the proceeding for almost 7 years), I accept that the defendant will face very real prejudice in gathering the evidence he will need to participate in an accounting between the parties. In particular, there is a high likelihood that he will be unable to source records from over 8 years ago that may show relevant movements between bank accounts.
75 In contrast, any prejudice to the plaintiffs is minor. As I have already noted, the plaintiffs accept that the sum claimed in the new claim is subsumed in the primary claim. Further, the amount of the new claim (which is also put in the alternative to a number of other secondary claims, as discussed above) is relatively modest. Finally, while the prejudice to the defendant may be ameliorated in part by ordering an accounting, the period that has elapsed since the events in dispute adds considerable weight to the need to bring finality to this proceeding.
Is the defendant entitled to damages under his counterclaim?
76 The defendant’s counterclaim is for the balance of his fee payable under the CMC, being $44,000 (including GST). His arguments in support of the claim can be summarised as follows:
(a) clause 10 of the CMC provided for the establishment of a project account and provided that the plaintiffs must deposit from time to time into such account sufficient funds to enable the defendant to pay trade contractors and suppliers “as and when they became entitled to payment” out of such account;
(b) the obligation under clause 10 can be construed in a variety of ways, including requiring a deposit of funds when:
(i) trade contractors and suppliers had been paid;
(ii) invoices were rendered;
(iii) quotations were accepted; or
(iv) “major items of work were expected to occur within coming weeks”;
(c) construction of clause 10 is assisted by clause 16 of the CMC, which refers to obligations arising when the costs of works have been “incurred” and for which the defendant is “liable to pay or has paid” – these support a generous construction of what is meant by “as and when they become entitled to payment” in clause 10;
(d) the special conditions require that the plaintiffs provide the defendant an amount of money as a holding deposit sufficient to cover the defendant’s possible day-today expenses incurred over an average two week period for the purposes of the defendant’s cash flow “i.e. ($40,000)”;
(e) the better view is that this provides a floor below which the level of “sufficient funds” should not fall, and in practical terms the cost of the works were going to be spread unevenly according to the requirements of the development;
(f) although other clauses of the CMC provided for payment within 14 days, it was clear from the special conditions that the parties agreed that: “Fortnightly Invoices and summary report to be paid no later than seven (7) days”;
(g) the term “summary report” was not defined in the CMC and, accordingly, this obligation to pay invoices within seven days arose regardless of whether a summary report was provided;
(h) the overall effect of these provisions was that, under the terms of the CMC, the defendant could provide invoices for the cost of the works to the plaintiffs whenever he believed additional funds were required to meet his obligations to trade contractors and suppliers as and when they became entitled to payment, which included:
(i) on receipt of taxation invoices;
(ii) once a quotation had been accepted; and
(iii) for work which was scheduled to occur within coming weeks;
(i) further, the float of $40,000 was not a cap on the amount the defendant could validly claim, and if a claim for additional funds was validly made, the plaintiff had seven days to make payment;
(j) at the time invoices SR0014 and SR0015 for $66,000 each were given to the plaintiffs on 30 November 2012 and 10 December 2012, the defendant was within the terms of the CMC in requesting additional funding from the plaintiffs to allow him to engage further trade contractors and/or suppliers;
(k) even if the court prefers a more limited construction of clause 10(b) of the CMC, the invoices were nevertheless validly submitted as the final JTA shows the "Movement" to be approximately $28,000 and $24,000 for the dates 30 November and 10 December 2012, respectively, being less than the amount of $40,000 in each instance;
(l) if it is held that the plaintiffs did not repudiate the CMC because the holding deposit was sufficient at either 30 November or 10 December 2012, the plaintiffs had nevertheless repudiated the CMC by the time it was terminated by the defendant on 8 January 2013, because at that time the JTA was showing a balance of approximately only $10,000;
(m) accordingly, when the defendant served the Notice of Termination on 8 January 2013 the CMC was validly terminated, both under the terms of the CMC and at common law as acceptance of the plaintiffs' repudiatory conduct; and
(n) had the plaintiffs not repudiated the CMC, the defendant would have completed the work under it, and the final payment of $44,000 (inclusive of GST) would have become payable to him on receipt by the plaintiffs of the certificate of occupancy.
77 The principles of construction, at least in so far as they are to be applied to a commercial contract of the kind constituted by the CMC, are well established.[24] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Unless a contrary intention is indicated, the court is entitled to approach the task of giving a commercial contract a businesslike interpretation, on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
[24]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, per French CJ, Nettle and Gordon JJ at [46]-[52]
78 In my view, the construction of the relevant provisions advanced by the defendant cannot be sustained. It is contrary to the plain words of the CMC and the clear commercial purpose of the CMC.
79 I agree with the plaintiffs that the CMC assumes that all significant trade contracts will be between the owners and the trades. This may be direct or through the defendant as agent for the plaintiffs as disclosed principals (clause 5(b)). In neither case would the defendant usually be liable for payment and the owners would be expected to make payment directly to the trades (clause 9(a)). There is an option for the parties to open a project account at a financial institution agreed by both parties and operable by the defendant but funded by the plaintiffs, which the defendant could use to make the payments to trades as agent for the plaintiffs (clause 10(a)). Clause 10(b) (the provision most relied on by the defendant) provides for the plaintiffs to deposit from time to time “into such account” sufficient funds to allow the defendant to pay trades as and when they become entitled to payment “out of such account”.
80 The CMC then allows in clause 11 for the possibility for the defendant himself to become liable for certain purchases of goods or services from trades if the amount is less than $5000. If the parties had proceeded in the manner contemplated by the CMC, the amounts for which the defendant became liable would have been only a minor part of the cost of the works. In particular, the only part which the plaintiffs would be liable to pay to the defendant would be his fee and the amounts of less than $5,000 each he might have personally incurred pursuant to clause 11. Everything else would be paid to the trades either directly or via the construction account.
81 I also agree with the plaintiffs’ submission that the defendant’s argument in respect of this claim (particularly his heavy reliance on the terms of clause 10(b) of the CMC) ignores what the parties actually did. They did not open a construction account under clause 10. If they had done so, the plaintiffs would have known the amount in it from time to time and not been reliant upon the defendant forwarding invoices. The defendant did not forward invoices or statements for the amount of his fee and any minor liabilities that he had incurred personally. Rather, the defendant treated all of the construction costs as personal liabilities and paid them out of a bank account over which only he had control or knowledge, and which he treated as his own funds. There were never any contracts entered into directly between the plaintiffs and the trades.
82 Recognising that no project account was established as contemplated by clause 10 of the CMC and that in fact all trades and suppliers were engaged by the defendant directly, attention then falls on clause 16 of the CMC. In my view, it is this provision that is the starting point for determining the mechanism under the CMC for the reimbursement of the defendant for the liabilities he incurred to trades and suppliers, albeit at a level not contemplated by the CMC as discussed above. However, I accept (as both parties in effect contend) that clause 16 is to be construed as subject to the special conditions of the CMC.
83 Clause 16(a) of the CMC required the defendant to submit a statement showing (among other things) the “Costs of the Works” incurred during the calendar month to which it related. Clause 16(b) imposed the obligation on the plaintiffs to pay the “Costs of the Works” and clause 16(c) governed the timing of payment. Clause 16(c) provided as follows:
“After the [defendant] has the submitted its statement pursuant to Clause 16(a), the [plaintiffs] must within the time state in Schedule 8 [14 days] pay the [defendant]:
(i)for any Costs of the Works that have been incurred by and for which the [defendant] is liable to pay or has paid; and
(ii) its fee calculated in accordance with clause 15.”
84 The special conditions relevantly provided: “Fortnightly invoices and summary report to be paid no later than seven (7) Days, all invoices and summary to be sent to Mr Paul Cameron via Email”. In his submissions, the defendant focussed on the seven-day payment terms in this special condition, but made no reference to the provision for fortnightly invoices. I agree with the defendant that the better view is that this special condition modified clause 16(c) by reducing the payment terms from 14 to seven days. The plaintiffs effectively conceded this. It is also arguable that it modified the requirement for the statement or summary report as contended by the defendant. But the defendant cannot take the good without also taking the bad. It clearly also provided the invoices were to be sent fortnightly.
85 Further, nothing in the special conditions operated to modify the clear words of clause 16(c) that the invoices were to be for costs “that have been incurred by and for which the [defendant] is liable to pay or has paid”. Contrary to the defendant’s submissions, there is no warrant for giving these words anything other than their plain and natural meaning. Thus, in my judgment, the costs that the defendant was entitled to, invoiced for every 14 days were, at most, those costs where the defendant had entered into a binding obligation to pay a particular trade or supplier. For practical purposes, that would include where the defendant had been invoiced on accepting goods or services or, possibly, where he had accepted a quotation.
86 On no view did the obligation under clause 16 of the CMC as modified by the special conditions permit the defendant to invoice the plaintiffs “for work which was scheduled to occur within coming weeks”. Nor did it entitle the defendant to invoice more frequently than every 14 days. I am satisfied that such a construction would give rise to a serious commercial inconvenience. As the plaintiffs’ counsel put it:
“Nowhere in the contract is there a provision that allows the Defendants to serve statements or invoices and summaries whenever they felt like it. The burden that would place on the Plaintiffs, who would have no way of knowing when they were required to make available substantial sums of money, would be quite unfair. Moreover, the 7 day time limit is expressly limited to fortnightly delivery of invoices and summary. If the Defendants were invoicing the Cost of Works for each interval, then the float of $40,000 should be maintained. There is no need to imply a term to deal with the Defendants’ failure to carry out their obligation.”
87 It follows that I also agree with plaintiffs’ counsels’ submission that:
“The contractual right granted to the Defendants was to demand payment for the works actually done, for which a liability was actually incurred, in a fixed period, be it a fortnight or a month. Thus, when they exercised that right and delivered invoice SR13 (which was paid within 24 hours), they had no further right to demand payment for a month (on the Plaintiffs’ construction) or on the view most favourable to the Defendants, for another 14 days, namely 13 December 2012. These were not valid invoices under the contract because the contract did not oblige the Plaintiffs to pay them.
Further, what emerges clearly from the documents and the testimony of the First Defendant, however, is that the amounts that he was demanding bore no relationship to the amounts that they were entitled to demand under the contract (on any construction). The Defendants were demanding not only the full amounts of quotations immediately upon their acceptance, regardless of whether the obligation to pay had yet arisen, they were also demanding amounts to cover work that might in future be done if it was then in anticipation. They were not valid invoices under the contract because they were not for the amounts that the Plaintiffs were obligated to pay.
…
As such, there was no obligation under the contract for the Plaintiffs to pay either of [invoices SR0014 and SR0015]. This is not a pedantic point: the invoices were for $132,000. They were never paid. The Defendants do not claim to have been out of pocket for any part of that amount, demonstrating that the actual liabilities incurred as at 7 December 2012 must have been very substantially less than claimed by the Defendants. Otherwise they would have had to pay those liabilities and would have been out of pocket.
88 In my view, the defendant’s Notice of Intention to Terminate relying on the plaintiffs’ failure to pay these invoices was invalid and of no effect, and thus the purported termination for breach by the defendant was equally invalid. There was no breach by the plaintiffs of the CMC at that time or at any later time that entitled the defendant to rescind the CMC and sue for damages. Instead, the CMC was terminated by operation of clause 20 of the CMC, probably by the notice given by the plaintiffs (although arguably the defendant’s notice had that effect as well). As the plaintiffs have submitted, if a party chooses to terminate a contract under such a right, they are not entitled to benefits under the contract that have not yet accrued. The CMC does not contain any term to the contrary.
89 Accordingly, in my view, the defendant’s counterclaim for that part of his fee payable on the issue of a certificate of occupancy should be dismissed.
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Certificate
I certify that these 41 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 19 February 2021.
Dated: 19 February 2021.
Sean Bricknell
Associate to His Honour Judge Woodward
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